Wednesday, September 18, 2013

Accounting for the Calculation Conundrum

“Few individuals in the XBRL community would disagree that calculations are one of the more confusing and frustrating aspects of the specification. In theory, calculations should be fairly straightforward. All the numbers on the financial statements should add up to the stated totals, but as we know the devil is in the details. Hopefully we can shed some light on those details by reviewing not only the basics of creating calculations, but also certain scenarios that are either tricky or downright impossible given the current limitations of the specification.”

Accounting calculations are complex, detailed and at times confounding. Throwing in the diverse variables introduced when attempting these calculations in XBRL can push the complexity over the cliff, with some scenarios being impossible to resolve within the limitations of the specification. Notable examples include the Stockholder’s Equity Statement, the dreaded issues with bleed-through, and even the “Basic Accounting Equation” (Assets = Liabilities + StockholdersEquity; or simply A=L+SE).

For example, in the recently published technical paper A Calculated Risk, CompSci's Shawn Rush takes a closer at the “Basic Accounting Equation”. Within XBRL, this calculation is limited by “balance type restrictions.” Since Assets is a debit and Liabilities and StockholdersEquity are both credits, the above equation would need to be rewritten to calculate validly; and doing so would require assigning a negative sign to either Assets or both Liabilities and StockholdersEquity. Since neither of these options makes sense, this elemental calculation cannot be present in XBRL’s calculation linkbase.†

Rush breaks down several examples in a similar manner to help simplify many of the complexities with XBRL calculations. He also illustrates that a firm understanding of the context in which the calculations exist is a key component to navigating these murky waters as you generate XBRL.

If you would like a lucid, thorough yet brief outline to help you understand calculations and their limitations within XBRL, please read A Calculated Risk. Ranging from the Basic Accounting Equation example above to untangling Dimensional Calculations and “Negation Abuse”, Rush dives into the devilish details to illustrate and clarify how calculations work in the XBRL specification.

After you read the technical paper, what analogies have clarified your understanding the complexities of XBRL calculations? How has the paper helped?